Sell-offs spurred by worries over government regulation and legislation can present good buying opportunities for investors. They can also destroy companies and reduce investors holdings to zero.
There are several companies currently facing what is potentially game-changing scrutiny by the FDA over their products; Lorillard Inc. (NYSE:LO), Monster Beverage Corp (NASDAQ:MNST) and Intuitive Surgical, Inc. (NASDAQ:ISRG).
So here is a quick overview of their situation and the trouble that could be ahead for each company.
Lorillard Inc. (NYSE:LO) is facing potential bankruptcy if the FDA bans the sale of menthol cigarettes. Lorillard controls about 38.3% of the US market for menthol cigarettes, which are often accused for drawing young smokers into the habit due to their minty flavor.
The safety of menthol products has been an issue that has been hanging over the industry for several years and a draft report to the FDA in 2011 recommended the removal of menthol cigarettes from the marketplace, as of yet, this has not been enacted.
That said, the FDA’s recent appointment of Mitchell Zeller as director of the FDA’s Center for Tobacco Products, has re-ignited the issue as Zeller is notorious for his aggressive stance on tobacco control and public health.
However, there has recently been a thaw in relations between the FDA and tobacco companies as Zeller indicated on his appointment that he was interested in ‘establishing an open, honest and direct dialogue with the industry and further indicated he is looking forward to working with all constituents in fulfilling public health issues.’
This should open up dialogue, hopefully establishing a decision on the menthol debate and providing clarity for Lorillard’s investors. One thing is for sure, 87% of Lorillard Inc. (NYSE:LO)’s revenue comes from the Newport menthol cigarette brand and any ruling against menthol products will annihilate all but 13% of the company’s revenue.
Lorillard Inc. (NYSE:LO)’s future is in the FDA’s hands.
Monster Energy has recently fallen foul of the FDA after the administration launched a formal investigation into the safety of added caffeine in food products, noting in particular, the effect on children and adolescents after thirteen people reportedly died in the US last year after consuming high caffeine drinks.
This investigation was launched just days after Monster filed a lawsuit in an attempt to halt San Francisco City Attorney Dennis Herrera’s investigation into Monster’s marketing tactics.
However, Monster Beverage Corp (NASDAQ:MNST) has rebuffed these allegations, accusing the authorities of singling-out the company as – ‘any child can walk into Starbucks Corporation (NASDAQ:SBUX) and buy a coffee’, which contains roughly the same amount of caffeine.
Monster Beverage Corp (NASDAQ:MNST) only manufactures drinks containing high levels of caffeine, so a ruling against the company or its products is likely to wipe out all of the company’s sales, revenue and income, leaving shareholders with nothing.